Kinder Morgan Can't Hide from Pricing Pains in Third-Quarter 2015, Pegs Full-Year Capex at $3.5 Billion

Researched by Industrial Info Resources (Sugar Land, Texas)--Despite a slew of acquisitions in the past year, energy pipeline transportation and storage company Kinder Morgan Incorporated (NYSE:KMI) (Houston, Texas), which moves about one-third of all natural gas consumed in the U.S., saw a sharp decline in revenues and profits in third-quarter 2015 as the company was unable to escape the low commodity prices that have plagued the Oil & Gas Industry. Industrial Info is tracking more than $24 billion in active projects involving Kinder Morgan.

Among the projects tracked is the $225 million construction of a refined products pipeline that will run from North Augusta, South Carolina, to the state's border near Savannah, Georgia. The 16- and 20-inch-diameter pipe will be able to transport up to 167,000 barrels per day of refined products, including gasoline, diesel and ethanol. The project is part of the $1 billion, 360-mile Palmetto Pipeline Project, which will run from Baton Rouge, Louisiana, to Jacksonville, Florida. Industrial Info is tracking six other projects associated with the entire pipeline.

Net income for the quarter was reported to be $186 million, a 43.47% decrease from third-quarter 2014; while total revenues stood at $3.71 billion, a 13.61% decrease. Although Kinder Morgan executives say that the company's predominately take-or-pay-supported cash flows largely insulate it from weak commodity prices, earnings in the CO2 segment and several gathering and processing assets in the Natural Gas Pipelines segment were affected nonetheless.

The Products Pipeline segment benefited from the Kinder Morgan Crude and Condensate Pipeline, which reported higher volumes; the Double H Pipeline, which was part of this year's $3 billion acquisition of pipeline and logistics company Hiland Partners; a reversal project on the Cochin Pipeline, which led to stronger throughputs; and the Houston Ship Channel, where the company commissioned a new crude-by-rail destination terminal at its Deer Park Rail Terminal for $34 million. Kinder Morgan's Terminals segment saw a jump in profits from strong performances at its liquids terminals.

Capital expenditures for the full year are estimated to be about $3.5 billion.

Earlier this week, Kinder Morgan announced that it had agreed to form a limited liability company with BP plc (NYSE:BP) (London, England) to acquire 15 of BP's refined products terminals in the U.S. for about $350 million. Kinder Morgan will operate 14 of the terminals, and fully own the 15th. For more information, see October 21, 2015, article - Kinder Morgan Takes 15 Terminals Off BP's Hands in $350 Million Joint-Venture Deal.

During the third quarter, Kinder Morgan placed about $400 million of completed projects into service. But it also removed roughly $1 billion in projects, mostly related to the CO2 segment. Still, the segment's SACROC Unit is on track for record annual production.

Kinder Morgan executives expect gas demand to increase more than 40% to nearly 110 billion cubic feet per day over the next 10 years. They noted that in the past 18 months, the company has entered new and pending firm transport capacity agreements totaling 9.1 billion cubic feet per day, including 400 million cubic feet per day added during third-quarter 2015. Kinder Morgan's current backlog of expansion and joint-venture projects stands at $21.3 billion.

"At Kinder Morgan specifically, our gas transportation volumes for electric generation are up 18% year-to-date 2015, versus the same period in 2014," said Rich Kinder, the executive chairman of Kinder Morgan, in a conference call. "Nationally for the third quarter of this year, [it's] a 4.4 billion-cubic-foot-a-day increase from the third quarter of 2014."

Earlier this week, Kinder Morgan's Texas Intrastate Natural Gas Pipeline Group executed a contract with the Comisión Federal de Electricidad, the state-owned electric utility of Mexico, to provide up to 527,000 dekatherms per day of firm transportation service, in response to a growing demand for U.S. natural gas.

"Natural gas exports to Mexico [are] a real, and it's growing," Rich Kinder said. "Let me give you the facts: Natural gas exports to Mexico for 2015 are expected to average 2.6 billion cubic feet a day, versus a 2014 average of 1.8 billion cubic feet a day. That's an increase of 44%. This summer, we found that natural gas exports had at times exceeded 3 billion cubic feet a day. Over the next four years, Mexico is expected to add 10.5 gigawatts of new natural gas capacity, and it's expected that another 3.2 gigawatts of oil power capacity will switch to natural gas. Meanwhile, as I think most of us know, Mexico's gas production continues into decline."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.